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Pessimism Apparent as Goldman-Bears Play with Put Options

Today’s tickers: GS, MU, PEG, CX, XRX, IYT, EEM, HOG, HUM & ALL

GS – Goldman Sachs Group, Inc. – Posturing in out-of-the-money put options on Goldman Sachs today indicates some investors expect the investment banking firm’s share price could erode substantially ahead of May expiration. Goldman’s shares slipped 1.5% during the trading session to stand at $160.94 as of 2:30 pm (ET). One pessimistic player invested in a debit put spread in order to position for continued bearish movement in the price of the underlying stock through expiration next month. The trader picked up approximately 11,700 puts at the May $145 strike for an average premium of $1.91 each, and sold the same number of puts at the lower May $120 strike for $0.16 apiece. Net premium paid for the put transaction amounts to $1.75 per contract. The trader makes money if Goldman’s shares fall 11% to breach the effective breakeven point to the downside at $143.25. Maximum available profits of $23.25 per contract are available to the options player should the financial services firm’s share price plummet 25% to $120.00 ahead of expiration day in May. Other bearish players engaged in plain-vanilla put buying at the June $150 strike where at least 3,600 put contracts were picked up for an average premium of $4.73 each. Put-buyers at this strike stand ready to accrue profits if Goldman Sachs’ share price slips 9.75% lower to breach the average breakeven point at $145.27 by June expiration.

MU – Micron Technology Inc. – A large-volume short strangle play employed on the manufacturer of semiconductor devices today suggests one big options player expects Micron’s shares to trade within a specified range through expiration in October. Micron Technology’s shares are up 0.10% to $10.81 as of 2:50 pm (ET). It looks like one trader sold approximately 24,000 puts at the October $9.0 strike for a premium of $0.73 each, in combination with the sale of about the same number of calls at the higher October $12 strike for $0.98 apiece. Gross premium pocketed by the strangle-strategist amounts to $1.71 per contract. The investor keeps the full amount of premium received today as long as Micron’s shares trade within the boundaries of the strike prices described through expiration day. Short positions assumed in both call and put options expose the trader to losses in the event that Micron’s shares rally above the upper breakeven price of $13.71, or if shares slip beneath the lower breakeven point at $7.29, ahead of October expiration.

PEG – Public Service Enterprise Group, Inc. – Bullish options investors piled into call contracts on the provider of electricity and power today with shares of the underlying stock trading 1.55% higher to $30.73. PEG’s board of directors earlier declared a quarterly dividend of $0.3425 per share for the second quarter. Near-term optimists picked up 2,200 now in-the-money calls at the May $30 strike for an average premium of $1.11 each. Call-buyers are prepared to profit if PEG’s share price rallies 1.25% from the current price to surpass the average breakeven point on the calls at $31.11 by expiration day in May. Buying interest spread to the June $30 strike price where 8,000 in-the-money contracts were coveted for an average premium of $1.23 apiece. Investors make money as long as Public Service Enterprise’s shares trade above $31.23 by June expiration. The surge in investor demand for call options on the stock lifted PEG’s overall reading of options implied volatility 4.9% to 21.04% as of 2:45 pm (ET). Investors exchanged approximately 10,500 option contracts on the stock today, which is roughly 72.5% of total existing open interest on the Public Service Enterprise Group of 14,467 contracts.

CX – Cemex SAB de CV – Shares of the world’s third-largest cement maker are trading 1.15% higher during the current session to stand at $10.64, but wary options investors are beefing up on near-term put options on the stock ahead of Cemex’s first-quarter earnings report slated for release after the closing bell on April 26, 2010. Bearish options traders scooped up more than 30,000 put contracts at the May $10 strike for an average premium of $0.27 each. Put-buyers make money if shares of the underlying stock decline 8.5% from the current price to breach the average breakeven point on the puts at $9.73 by expiration day next month.

XRX – Xerox Corp. – Short straddle-strategists flooded the options field on Xerox Corp. today with shares of the printing and imaging solutions company trading 0.10% lower to $10.70 as of 12:40 pm (ET). The biggest straddle play employed on XRX thus far today appears to be the work of an investor who is expecting Xerox’s shares to rally up to $11.00 in the next several months. The trader sold 18,650 puts at the October $11 strike for a premium of $1.12 each, and sold 18,650 calls at the same strike for $0.76 apiece. Gross premium enjoyed on the transaction amounts to $1.88 per contract. The investor keeps the full amount of premium received if shares of the underlying stock settle at $11.00 at expiration. Parameters of the transaction suggest the trader expects, at the very least, to see XRX shares trade within a narrow range through expiration day. However, the investor is exposed to potentially devastating losses should Xerox shares rally above the upper breakeven price of $12.88, or should shares slip beneath the lower breakeven point at $9.12, ahead of October expiration.

IYT – iShares Dow Jones Transportation Average Index Fund – Shares of the IYT, an exchange-traded fund that seeks investment results that correspond to the price and yield performance of the Dow Jones Transportation Average Index, which is an index that measures the performance of the transportation sector of the U.S. equity market, edged 0.43% higher as of the middle of the trading session to stand at $83.59. Despite the slight appreciation in the price of the underlying shares, bearish transactions dominated options activity on the fund. It looks like pessimistic players purchased at least 15,000 put options at the May $80 strike for an average premium of $1.00 per contract. The out-of-the-money contracts yield profits to investors if the IYT’s shares sink 5.5% beneath the current price to breach the average breakeven point on the puts at $79.00 by May expiration. More than 24,000 put options changed hands at the May $80 strike today, which compares to paltry existing open interest at that strike of just 643 contracts. Increased investor demand for put options on the fund fueled a 7.8% increase in the overall reading of options implied volatility on the IYT to 20.72%.

EEM – iShares MSCI Emerging Markets Index ETF – A short straddle initiated on the EEM suggests one options player expects shares of the underlying fund to settle at $43.00 by December expiration. Shares of the EEM, an exchange-traded fund that tracks the price and yield performance of the MSCI Emerging Markets Index, which is an index designed to measure equity market performance in the global emerging markets, increased 1.35% to $42.86 as of 12:20 pm (ET). The investor responsible for the straddle-strategy sold 5,250 puts at the December $43 strike for a premium of $4.35 each in combination with the sale of 5,250 calls at the same strike for $3.72 apiece. Gross premium pocketed on the transaction amounts to $8.07 per contract. The straddler keeps the full premium received on the trade if shares of the underlying fund settle at $43.00 at expiration. The amount of premium the investor retains erodes should shares shift in either direction away from the central December $43 strike price. Short positions held in both call and put options exposes the trader to losses in the event that shares of the EEM rally above the upper breakeven price of $51.07, or if shares slip beneath the lower breakeven point at $34.93, ahead of December expiration.

HOG – Harley-Davidson, Inc. – Shares of the largest U.S. motorcycle manufacturer are soaring 9% higher in the first half of the trading session to secure a new 52-week high of $35.73 after the firm posted first-quarter profits of $0.29 per share, which beat average analyst estimates of $0.24 a share. One HOG-bull was prepared for the current rally in the price of the underlying stock. It looks like the trader originally purchased approximately 5,000 calls at the May $34 strike for an average premium of $1.60 each back on April 15, 2010, when HOG’s shares traded at a volume-weighted average price of $33.60 each. The subsequent surge in Harley-Davidson shares inspired the investor to sell the now in-the-money call options and roll the bullish stance to a higher strike price. The trader sold roughly 5,000 calls at the now in-the-money May $34 strike for an average premium of $2.13 each today, thus banking net profits of $0.53 per contract. Finally, the options player established a new optimistic stance on HOG by purchasing about 5,000 calls at the higher May $36 strike for a premium of $1.06 each. The investor makes money on the new call position if Harley’s shares trade above the average breakeven point to the upside at $37.06 ahead of expiration day next month. Options implied volatility collapsed 20.6% following earnings to stand at 35.73% as of 11:00 am (ET).

HUM – Humana Inc. – The health benefits company, which was rated new ‘outperform’ at Wedbush this morning, realized a 1.6% increase in the value of its shares today to $45.38. Bullish trading strategies dominated options activity on Humana in the first hours of the trading day. Investors initiated long-term optimistic stances on the stock by selling put options in order to finance the purchase of call options in the January 2011 contract. It looks like Humana-bulls sold 2,500 puts at the January 2011 $40 strike for a premium of $3.10 each, spread against the purchase of the same number of calls at the higher January $50 strike for $3.50 apiece. Net premium paid for the bullish risk reversal amounts to $0.40 per contract, and thus positions the responsible party to accrue profits should Humana’s shares jump 11% over the current price to surpass the effective breakeven point at $50.40 by expiration day in January. Similarly, another 1,500 puts were sold at the January 2011 $40 strike for $3.10 each, and marked against the purchase of 1,500 calls at the higher January 2011 $55 strike for a premium of $2.05 a-pop. The trader responsible for this bullish play receives a net credit of $1.05 per contract, and keeps the full amount received on the sale as long as HUM’s shares trade above $40.00 through expiration day. Additional profits accumulate should shares of the underlying stock surge 21.2% over the current value of the stock to exceed $55.00 each by January expiration.

ALL – The Allstate Corp. – Shares of the holding company for Allstate Insurance Company, a firm engaged in the personal property and casualty insurance business, as well as the life insurance, retirement and investment products business, are up 1% in morning trading at a new 52-week high of $34.54. Investors anticipating continued appreciation in the price of the underlying shares purchased longer-dated call options on the stock. Bullish options players purchased approximately 12,000 calls at the October $37 strike for an average premium of $1.19 per contract. Call-buyers make money if Allstate’s shares rally 10.6% over the current price to exceed the average breakeven point on the calls at $38.19 ahead of October expiration.


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  1. MON   For what its worth……
     
    http://www.ethicalinvesting.com/monsanto/avoid.shtml


  2. Phil,  MON     As a newbie I’m highly reluctant to disagree but will submit a few thoughts on MON
    Following is a technical perspective on MON from The Street’s technical expert L.A. Little
    http://www.thestreet.com/video/10727991/monsantos-seedless--real-money-trades.html#78442491001 projecting a price of 37.     Little says MON is his only short pick in past two months
    This corresponds to Zacks analyst Kevin Matras projecting 35 – 40   Zacks rates MON a Strong Sell based on the assimilation of numerous anaysts who follow MON 
    Oppenheimer just lowered its MON target from 82 to 72, a target which I presume is several months in the future
    Thr $276 M buyback @ $67 ( 276 M/ 67) might amount to approximately 4,000,000 shares.  This buyback spread over the next week, not too significant  with daily volume @ 8,500 M shares
    Further the entire industry is weak with average PEs 10 to 12, i.e. ADM 9.5 
    What influence http://www.ethicalinvesting.com has on the 300+ mutual funds listed is anyone’s guess, but to some extent it may motivate said mutual funds to dump MON  http://www.ethicalinvesting.com/monsanto/ 
    I’m at a loss to see where the enthusiasm to own MON is going to come from after MON spends its $276 M ….
    Best regards,  Lee Salisbury